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Global technology trends - 3Q 2011 earnings season - EY - Global

Global technology trends: 3Q 2011 earnings season

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Only the innovative thrive

After a brief period of nearly universal growth emerging from the global downturn of 2008-2009, macroeconomic gloom reasserted itself and slowed or stopped growth for the top 100 global technology companies in the third quarter of 2011. Yet disruptive innovations around mobile, social, cloud and "big data" technologies gained momentum, widening the gap between "winners" and "losers" among the top 100.

Fifty-two of the top 100 companies experienced YOY declines in operating income in 3Q11 — compared with 46 decliners in 2Q11 and 37 in 1Q11 — including 12 companies that incurred operating losses, according to the new report, View from the top: global technology trends and performance, an analysis of results from the 3Q11 earnings season.

Third quarter 2011 earnings season highlights

  • Aggregate third quarter operating income for the top 100 global technology companies declined 2% year-over-year (YOY) to $69 billion
  • At $625 billion in sales, YOY growth slowed to 6% in 3Q11 compared with 13% YOY in both earlier 2011 quarters
  • However, growth above 20% in sales and operating income was achieved by companies innovating in cloud computing, smart mobility, social networking or "big data"
  • The top 100 companies, as a group, traded at 10.3 times trailing 12-months operating income in 3Q11, down from 11.1 times in 2Q11 and 11.6 times in 1Q11
  • Big-ticket deals in smart mobility and "big data" powered M&A buying to $28.3 billion in 3Q11, a 24% YOY increase

Technology 'megatrends' still drive strong growth

Despite the aggregate growth slowdown, certain companies grew rapidly in both sales and income. For the second consecutive quarter we saw a pattern in which the fastest-growing companies were those leading — or responding swiftly to — disruptive innovation that has the potential to reshape business models in many industries. These include smart mobility, cloud computing, social networking and business intelligence/analytics.

In all, these technologies either contribute to what has come to be known in 2011 as the "big data problem" or they help to address it, the View from the top report notes. The need for business intelligence/analytics tools is growing faster than before because smart mobile devices and social networks are generating a large amount of data about the behavior of their users. At the same time, cloud services enable more companies to make use of business intelligence/analytics tools by reducing the initial investment and expertise required for a company to use them.

Social media conundrum

The report also describes a conundrum emerging from the rapid growth of social media. Most organizations require a strategy to engage in social media, but it's happening so fast and at such large scale that the "why" and "how" of that strategy — and the risks involved — are not yet fully understood. The report discusses "social media audits" as an important tool in helping organizations resolve that conundrum.

Subsector performance

The internet subsector posted the best YOY growth in aggregate sales (33%) and operating income (16%) of any sector for 3Q11. Most challenged were semiconductor and computers, peripherals and electronics subsectors. Aggregate sales growth was zero for computers, peripherals and electronics and aggregate operating income declined 34%. In semiconductors, sales grew 8% but operating income declined 14%.

Outlook for technology companies

Although global macroeconomic uncertainty continues to cast a shadow over the top 100 global technology companies, the fourth quarter is typically the technology industry's strongest — so a seasonal increase may be in the offing. Even so, such an increase may only serve to widen the gap further between "winners" and "losers."

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